Pets.com was an online seller of pet supplies founded by Greg McLemore and Eva Woodsmall during the dot-com bubble in 1998. In its first round of venture funding, Pets.com secured a 54% stake in the company from Amazon CEO Jeff Bezos. After filing for bankruptcy in November 1999, the company became one of the shortest-lived public companies in history. Pets.com represents all that was wrong with the business playbook of early internet companies: ambitious business plans, with aggressive assumptions, easy capital, and lack of reality checks, as early Internet companies went for grandiose plans, instead of gradually testing the market.
Aspect
Explanation
Background
Pets.com was an American online pet supply retailer founded in 1998 during the dot-com boom. The company aimed to take advantage of the growing e-commerce industry by offering pet owners a convenient way to purchase pet products and supplies online. Pets.com quickly gained attention for its memorable sock puppet mascot featured in its advertising campaigns.
High Profile IPO
One of the defining moments of Pets.com was its initial public offering (IPO) in February 2000. The IPO generated significant media coverage and investor interest, reflecting the enthusiasm of the dot-com era. The company raised substantial funds through the IPO to fund its expansion and marketing efforts.
Aggressive Marketing
Pets.com invested heavily in marketing and advertising, including the prominent use of its sock puppet mascot in television commercials. While these marketing efforts created brand awareness, they also incurred substantial costs. The company’s high-profile advertising contributed to its public recognition but raised concerns about its ability to sustain such expenses.
Operational Challenges
Despite its marketing success, Pets.com faced fundamental operational challenges. The company operated in a low-margin industry, and the cost of acquiring and shipping pet products was often higher than the prices at which they were sold. This resulted in significant losses, even with strong revenue growth. Additionally, Pets.com struggled with inventory management and fulfillment logistics.
Dot-Com Bust
Pets.com went public at the peak of the dot-com bubble in early 2000. However, as the bubble burst later that year, investor sentiment shifted dramatically. Many high-flying tech companies, including Pets.com, saw their stock prices plummet. The burst of the dot-com bubble led to a more skeptical investment climate and a focus on profitability rather than growth at any cost.
Bankruptcy and Liquidation
Unable to turn a profit and facing mounting losses, Pets.com filed for bankruptcy in November 2000, just nine months after its IPO. The company’s stock price had fallen from its peak, and it struggled to secure additional funding. In the bankruptcy process, Pets.com liquidated its assets, including its iconic sock puppet mascot. The company’s demise became a symbol of the excesses and failures of the dot-com bubble.
Legacy
Pets.com’s rapid rise and spectacular fall remain one of the most iconic stories of the dot-com era. While the company itself did not survive, it left a lasting legacy in the business world as a cautionary tale of the dangers of pursuing aggressive growth strategies without a sustainable business model. The Pets.com sock puppet also remains a memorable symbol of the dot-com bubble era.
Impact on E-commerce
The rise and fall of Pets.com had a broader impact on the e-commerce industry. It prompted a shift in investor and consumer sentiment toward e-commerce companies, with a greater focus on profitability and sustainable business models. The Pets.com experience contributed to a more cautious approach to valuing and investing in internet startups. Despite its failure, the e-commerce industry continued to grow and evolve, ultimately becoming an integral part of the global retail landscape.
Table of Contents
Background
Pets.com was an online seller of pet supplies founded by Greg McLemore and Eva Woodsmall during the dot-com bubble in 1998.
In 1999, the site and domain were purchased by venture capitalist Hummer Winblad and eventual CEO Julie Wainwright – later the founder of luxury fashion site The RealReal.
Wainwright was tasked with getting the company off the ground and she did so with spectacular effect. In its first round of venture funding, Pets.com secured a 54% stake in the company from Amazon CEO Jeff Bezos.
The company then raised $82.5 million in an IPO held in February 2000. The IPO followed an aggressive marketing campaign that saw advertisements placed during the Super Bowl and at Macy’s Thanksgiving Day Parade.
Initial sales were extremely promising, with the share price peaking at $14.
Just 268 days later, Pets.com declared bankruptcy and in the process, became one of the highest-profile victims of the dot-com bubble.
Below we will discuss how a company with a valuable domain name, strong eCommerce affiliate, and clever branding failed so quickly.
Unsuitable business plan and excessive spending
During its short life, Pets.com spent millions on advertising and marketing. From February to September 1999, the company spent more than $70 million (reference uky.edu/~dsianita/695ec/failure.html) despite only taking in $619,000 in revenue.
Adding to its incredible expenses were the salaries and benefits for over 300 staff.
The lack of a suitable business plan was also apparent.
The company sold its pet products at a third of the price it paid to obtain them with the belief that huge discounts and free shipping would win it a large customer base overnight.
Shoe seller Zappos had successfully used the same strategy, but Pets.com had not counted on the cost of shipping its products. Items such as dog food, cat litter, and pet crates were heavy or bulky and thus very expensive to post.
In an industry already characterized by slim profit margins, the company had no hope of turning a profit.
Poor understanding of target audience
Pets.com never planned to offer free shipping and deep discounts forever. Eventually, it wanted to move customers to high-profit margin purchases.
This move reflected a poor understanding of the target audience. In particular, the company failed to change pet food buying patterns because pets tend to react negatively to sudden changes in diet.
Pets.com also assumed that more people would buy pet supplies online in the first place. Without proper research, it failed to understand that the market for home-delivered pet food was unprofitable.
Although this trend is more popular today, consumers in 1999 preferred to buy pet food in physical stores. This was partly for convenience, and partly because many simply didn’t know how to purchase something on the internet.
A lack of technology
To some extent, Pets.com was ahead of its time in the eCommerce space.
In 1999, there were no plug-and-play solutions for scalable eCommerce, warehouse management, or customer service. As a result, the company had to hire a team of over 40 engineers.
Cloud computing was also many years away, so the company had to create a server farm and hire yet more staff to ensure the website did not go down. The lack of technology drove operating costs higher still.
Start-up culture
Many start-up companies of the era provided catered meals or fully stocked kitchens to their employees. Games, gym memberships, group outings, and parties were also routinely offered as incentives.
Pets.com management did not skimp on this culture, further hindering its ability to make a profit.
With excessive spending continuing in the face of an unprofitable businessmodel, there was only one end for Pets.com.
Key takeaways:
Pets.com was an American online pet food retailer founded by Greg McLemore and Eva Woodsmall during the dot-com era. After filing for bankruptcy in November 1999, the company became one of the shortest-lived public companies in history.
Pets.com spent millions on marketing before bothering to verify whether there was a demand for its products. At the time, consumers preferred to purchase pet food in physical stores.
Pets.com was ahead of its time, to some extent. Its high operating costs were exacerbated by a lack of suitable eCommerce, customer management, and cloud technology, among other things.
Quick Timeline
Pets.com was an online pet food retailer founded during the dot-com bubble in 1998.
The company secured a 54% stake from Amazon CEO Jeff Bezos in its first round of venture funding.
Pets.com raised $82.5 million in an IPO in February 2000, following an aggressive marketing campaign.
The company spent millions on advertising and marketing, despite low revenue, leading to excessive spending.
Pets.com had an unsuitable business plan with deep discounts and free shipping that led to unprofitable operations.
The company failed to understand its target audience and the market for home-delivered pet food.
A lack of suitable technology and high operating costs further hindered Pets.com’s profitability.
The company’s start-up culture with excessive spending on perks added to its financial troubles.
Pets.com filed for bankruptcy just 268 days after its IPO, becoming one of the high-profile victims of the dot-com bubble.
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Netscape – or Netscape Communications Corporation – was a computer services company best known for its web browser. The company was founded in 1994 by Marc Andreessen and James H. Clark as one of the internet’s first and most important start-ups. The Netscape Navigator web browser was released in 1995 and became the browser of choice for the users of the time. By November 1998, it had been acquired by AOL, which tried unsuccessfully to revive the popularity of the web browser. Ten years later, Netscape was shut down entirely.
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Compaq also experienced a loss in revenue after the dot-com bubble burst. This was exacerbated by the standardization of chipsets and motherboards by Intel.
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Friendster’s decision to raise funds via venture capital funding populated its board with investors who were not interested in technology or innovation. The company was acquired by MOL Global in 2009 who then sold its patents to Facebook soon after.
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Corporate mismanagement within Nokia was rife and culture suffered as a result. Internally and externally, the company failed to acknowledge its diminishing relevance and market share.
Xerox is an American corporation selling print and digital document products and services worldwide. The company failed to capitalize on revolutionary research performed at its PARC R&D center.
Xerox was visited by Steve Jobs in 1979 who gained access to PARC in exchange for Xerox receiving shares in Apple. He then purchased the rights to a Xerox GUI and used it to produce the Apple Macintosh.
Xerox released the Xerox Star personal computer in 1981 in a rare example of the company selling an innovative product commercially. However, the Star was prohibitively expensive, targeted the wrong market, and was a decade ahead of its time.
Quibi was an American short-form streaming service for smartphones. Unfortunate timing with the onset of the COVID-19 pandemic is at least partly responsible for the failure of the platform.
Despite billions being invested in securing high-end talent and production studios, Quibi content was generally poor quality. In any case, there was no way for consumers to share or engage with the content they did enjoy.
Quibi was not helped by its pricingstrategy and the presence of established competitors offering more for less. It was also improperly and inadequately marketed.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
